Tag Archives: Bailout

After double checking to make sure the cameras were turned on and the hearing was being broadcast to a nationwide audience, the members of the House financial services committee proceeded to engage in a timeless congressional tradition: grandstanding. “How many of you took private jets here?” one asked, “how many of you are thinking about putting them on Ebay?” quipped another, “couldn’t you all have downgraded to first class or jet pooled or something to get here?” smirked a third. As other members gleefully piled on, the CEOs of the three major automakers sat sullen, like petulant children who had gotten caught being naughty. Relive your childhood “I’m really disappointed in you, son” lecture here:

Like the obnoxious guy at the party that tells the same stupid joke because he knows it always gets a good laugh, each and every member had some comment about the private jets throughout the hearing. Predictably, the evening news and late night talk shows picked up the easy sound bites and the “cooler talk” the next day centered around the general douchebaggery of the rich CEOs and then moved on to the more pressing news that Brittany Spears was making a comeback appearance at the AMAs. While Congress certainly did a good job in pointing out the symbolic mistake, they missed a golden oppotunity to address the real problem with American automakers: their cars.

While some have blamed the unions and others have blamed the fiancial meltdown, analysts need to look no further than the 8 mile/gallon mobile overcompensation machine known as the Hummer. While the rest of the world was making the shift to more fuel efficient cars, American manufacturers stubbornly continued to stamp out the gas guzzlers that would lead to their eventual demise. After visiting Germany in the summer of 2006, I was struck at how small the cars on the streets were and how few SUVs clogged the highways. Even the trucks that were used for delivery or construction were much smaller then Ford’s Excursion or Chevy’s enormous pickups. The tiny Smart Car was a regular occurrence and people did not endure the juvenile ridicule of poltical rivals if they drove a hybrid.

When I came back state side, I was keenly aware of how large the vehicles around me were – and how many of these vehicles carried around one person at a time. When I turned on the TV, Jeep was advertising the new Cherokee SR8, the least fuel efficient jeep ever produced (but hey it had a Hemi and makes alot of noise guys…SWEET!), while Toyota was rolling the Prius off the assembly line. GM’s solution to the highest gas prices in a decade? “We’ll buy your gas for a year!!!” American consumers were never asked to change their behavior and the automakers fought congressional efforts to make fuel standards stricter.

Furthermore, the old men at Ford continue to scratch their balding heads and wonder why young people don’t buy their cars. Market research makes it pretty clear that young people are more image conscience than most yet Ford has the same logo that they had WHEN THE MODEL T CAME OUT!!! Toyota? they invent an entirely new brand (Scion) to market exclussivly to the young, hip, loud music set with great success. While a logo does not make or break a car, its a symbol of the lack of innovative thought that American companies need to stay compettive. Couple that with the fact that American cars are less reliable and have more recalls than foreign cars and you get 3 CEOs begging for cash to bail them out.

So what now? When he is not pandering for votes in Michigan, Mitt Romney tells Detroit to take a hike while other Republicans refuse to support a detroit bail out. The results of this would be catastrophic according to some analysts who predict the loss of hundreds of thousands of jobs by the time you factor in part suppliers and retailers. Obama is a bit more pragmatic at this point and has sent a message to Detroit that they need to make changes that should have been made years ago. So this week, the CEOs stocked up on beef jerkey, made a sweet mix tape and roadtripped back to DC – this time trading in the private jets and rolling into town driving Hybrids.

While there is still hope for American autos (at least according to this guy) there needs to be fundamental changes in the way we look at driving and the type of fuel standards that we demand from the cars we buy. American car companies need to ditch the SUV or make them more fuel efficient. They need to innovate and stay current with style trends to attract new buyers. They need to hire the best and the brightest to live in a green economy and yes, they may even have to get rid of the private jets and lavish salaries for their CEOs. That being said, I’m still going to buy a Subaru.

The Bailout legislation that recently passed was the only way to help the ailing economy.

At least that’s how it was sold to us. But the salespeople were wrong. There were a myriad of ways that government could have helped during these difficult times. But let’s look at at from a different perspective. What bad things might have happened if the bailout legislation had not been passed?

College students are unable to receive loans to pay for tuition.

GM fails. Every single person working there loses their job.

Home sales will plummet without the availability of credit.

Now, these aren’t the only economic problems that we might have faced sans-bailout, but those were three very strong arguments for passing the bailout legislation. Here’s the problem: both political parties see a top-down $800 billion solution as the best approach to help the American economy. A working-class friendly solution might have looked a bit more like this:

Government has an interest in the industry that they are subsidizing equal to the shares that are purchased, rather than giving money without control. For example, the government could have purchased shares of AIG at $3 each; to have had a controlling stake would cost $4.035 billion.

College students would still have access to Pell grants and government loans. The current crisis would have zero effect on the availability of these programs. However, some students may have trouble finding private lenders. The government could expand their loan programs to cover these students struggling to find loans.

Or, as another option, give every college student in America (pdf) a scholarship for $5,000. This second option would cost $83.5 billion. This would cut college costs in half for students attending public universities. Students would still qualify for Pell grants and government loans.

GM has 266,000 employees. A job works program could employ 1 million Americans for five years at a cost of $200 billion. The average salary would be $40,000.

This last claim is simply untrue. Rather than plummeting, home sales have done quite well, even in the current market. People are still buying houses, and the government does not need to guarantee home ownership; giving mortgages that people can’t afford is a problem. People with good jobs and good credit ought to own homes. The government ought to treat the illness, not the symptom.

During the debate over bailout legislation, there were sober folks on each side of the issue providing good information. So no, it wasn’t “smart” people versus “dumb” people in this debate. In fact, a story on NPR noted that 200 economists (each of them smart) did not agree that the bailout legislation was necessary. Of course, there were other economists who did believe that it was important to pass said legislation. I don’t doubt their intelligence; I simply disagree with their method for stimulating the economy.

If somebody can give me an educated answer on why this bailout for the financial industry is necessary, I would certainly appreciate it. And no, I’m not trying to be sarcastic here, I’m simply trying to understand the difference between ordinary citizens who made boneheaded financial decisions in buying homes they couldn’t afford and banks who gave them these loans without properly vetting their repayment capabilities. I will not accept the argument that if there was no bailout, the whole financial system of the country would collapse, if the same people are not advocating for the bailout of the failing health care system, where over 45 million people are without healthcare insurance. I will not accept the argument if nothing is done in raising minimum wage, elevating environmental standards or fixing failing infrastructure around the country. Bailing out financial institutions without doing nothing for its citizens shows complete moral bankruptcy of this government.

I will argue, that instead of bailing out financial sector, our government should have simply given that money to the citizens. I know that some of you will scream that murder at this proposal, but my reasoning behind it is very reasonable. According to this CNN article, there are approximately a little over a million foreclosures in the US, as of June of 2008. Figuring that an average home mortgage is about $250,000, using simple math we conclude that by simply giving $700 Billion to the people, the government can pay off by my estimations about 2.8 million mortgages. What will this giveaway do, you might ask? Well, firstly, considering the fact that property values have gone down by as much as 25%, by eliminating all foreclosures, the house values will go up instantaneously. Secondly, this move will immediately allow at least 2.8 million consumers to invest a lot of money into the local economy, since they don’t need to worry about paying their mortgage anymore. That means that thousands of new businesses will be opened which will subsequently result in thousand of new jobs. These new jobs will in turn generate additional tax revenue for not only federal, but also for state and local governments. Lastly, these paid off mortgages will automatically rescue these financial companies, because they will no longer have the bad debt that brought us to this point in the first place.

I understand that my solution might sound like a crazy socialist talk. But bailing out commercial and insurance companies when they made terrible business decisions, using taxpayers money, is no less socialistic. If we allow corporations to easily right off their debt and stave off bankruptcy, we should do the same for ordinary citizens.